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Despite Recent Profit, Mitsubishi Motors Is Pulling Production Out of America

As Mitsubishi pulls production out of the U.S., what is the automaker's next step?

Compete in the U.S. automotive industry at your own risk. It's a brutally competitive and price-intensive place to do business. For every import success, such as Honda Motor Co. or Toyota Motors, there are failures such as Suzuki and Isuzu. Mitsubishi Motors' (NASDAQOTH:MMTOF) sales in the U.S. have been plunging since the early 2000s, though the company recently posted its first quarterly profit in North America in seven years.

While Mitsubishi's North American profit was a bright spot in an otherwise dreary decade for the company's performance, which has been walking a fine line between revival and going the way of Suzuki, the company has finally decided to throw in the towel on production in the ultra-competitive U.S. auto retail market.

Why now? Mitsubishi has been struggling in the U.S. market for some time now, but finally made some progress over the past year with the well-liked Outlander and Outlander Sport SUVs, at a time when SUV sales are surging in America. Despite the recent success in the more profitable SUV segment, Mitsubishi decided it was best to stop production at its only U.S. assembly plant, in Illinois.

"The reality is that the scale of the [U.S.] plant is very small compared with manufacturing plants of other companies," said Tetsuro Aikawa, Mitsubishi president and CEO, in a news conference. "It was becoming clear that the plant didn't have an economic rationale."

Last year, Mitsubishi's lone U.S. assembly plant produced less than one-third of the vehicles it made during its prime in 2000. The end of production could affect roughly 1,200 local employees of Mitsubishi's plant, unless the Japanese automaker can find another auto manufacturer to purchase the plant and potentially retain the workforce.

What's next? The automaker still plans on selling vehicles into the U.S. retail market by exporting them from the company's Thailand and Japan operations. This move could improve Mitsubishi's profitability, despite higher transportation costs and tariffs, because the weakening yen is a huge tailwind for Japanese automakers selling vehicles in America.

While the U.S. market is lucrative and automakers would love their piece of the pie, Mitsubishi's U.S. sales in the fiscal year ended March 2015 totaled a meager 82,000 units out of roughly 1 million global units. The next chapter in Mitsubishi's automotive story is to focus on emerging markets with less competition from major global automakers.

"We have a long history in Thailand, Indonesia, and the Philippines, a larger market share compared to other regions, and a strong brand image, which are very big advantages," Chief Executive Osamu Masuko told The Wall Street Journal earlier this year.

While Mitsuibishi's move to end production in the U.S. could hinder its sales in America if the yen strengthens versus the dollar, making importing its vehicles less valuable, investors cheered the move and sent the stock as much as 5% higher early Monday.

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As a Motley Fool Industrial Specialist, I use my marketing and business background in the automotive industry to evaluate major automakers and other large industrial corporations. Follow me on twitter for tweets about stocks, cars, sports, and anything I find amusing.
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